Queensland Major Projects Pipeline

Queensland Major Projects Pipeline
Queensland Major
 Projects Pipeline



   A JOINT INITIATIVE OF THE QMCA, CSQ AND IAQ
Queensland Major Projects Pipeline
AT A GLANCE
                              Total Pipeline                     Major project
                              Value                              activity
                              $39.9b

                                     Funding split
                                     $20.2b
                     $39.9b          Public Projects
                      Total          $19.7b
                                     Private Projects




 Major Projects Pipeline – Breakdown
 $39.9 billion total (over 5 years)




                                                        Credibly
 Unlikely                     Prospective               proposed
      33                            43                        22
projects valued at            projects valued at        projects valued at

  $6.9b                          $5.1b                    $4.1b



                       Unfunded $16.1 billion
Queensland Major Projects Pipeline
$7.9b      per year



Scale of                    $21m      per day
Recurring
Expenditure



                            $2.1m         Major
         $152m                per
                                          Projects
         per week
                            working
                             hour
                                          Jobs
                                          The funded pipeline will support
      $8.2b                               12,700 workers
      North Queensland                    each year on average
      $13.6b
                                          Fully-funding the pipeline
      South East Queensland               will support an extra
      $3.8b                               4,700 workers
      Surat Basin                         each year on average
      14.3b
      Various




                                         Under                       Under
      Announced                       procurement                 construction
              22                                12                           58
       projects valued at              projects valued at              projects valued at

         $5.3b                            $4.1b                         $14.4b



                             Funded $23.8 billion
Queensland Major Projects Pipeline
CONTENTS
Foreword1
Executive Summary                                                                             2
Long-term Challenges and Recommendations                                                      5
Economic Outlook                                                                            10
Long-term Queensland Major Projects Pipeline                                                24
Workforce and Employment Outlook                                                            38
Implications, Challenges and Risks                                                          46
Conclusion and Recommendations                                                              60
2018 Major Projects List                                                                    64




This report has been produced by the QMCA, CSQ and IAQ (“the Industry Bodies”) with the
assistance of BIS Oxford Economics. The report is based on information available as at end
March 2018 from public and private sources including Project Sponsors and the Industry
Bodies, Project Sponsors and BIS Oxford Economics provide no warranty as to its accuracy,
reliability or completeness. To the extent permitted by law, neither the Industry Bodies, Project
Sponsors or BIS Oxford Economics or any of their related entities accept liability to any
person for loss or damage arising from the use of the information contained in this report.
Queensland Major Projects Pipeline
FOREWORD
                                                                                      We are proud to introduce
                                                                                      the 2018 Queensland
                                                                                      Major Projects Pipeline
                                                                                      Report to you – an initiative
                                                                                      of the Queensland Major
                                                                                      Contractors Association
                                                                                      (QMCA), Construction Skills
                                                                                      Queensland (CSQ) and the
                                                                                      Infrastructure Association
                                                                                      of Queensland (IAQ).

Nowhere else in Australia do industry     For governments, the consolidated           Queensland is a decentralised and
peak bodies consult so closely with       picture of state wide major project         vast Australian state which requires
governments, government-owned             activity in the next four years can help    continued investment in infrastructure
corporations and private sector           guide policy formation, unlock the          by both public and private sectors
proponents to accurately chart            potential for private sector partnerships   to meet demands of a growing
the status of all major projects in       and leverage capital works investment.      population and increase our global
their home state. The fruit of this                                                   competitiveness. Experience from
                                          The greatest threats to a sustainable
approach is an authoritative report                                                   successful countries and jurisdictions
                                          pipeline of projects are the
which describes the scale, timing                                                     around the world show that when
                                          identification of investable projects,
and location of all major engineering                                                 public and private sectors face
                                          availability of funds and timely
projects being considered or                                                          infrastructure challenges together,
                                          investment decisions. This year’s
developed in Queensland.                                                              the public and economy are the big
                                          report highlights much lower levels
                                                                                      winners. Perhaps the real worth of our
Sincere thanks to our partner             of private sector investment than
                                                                                      report is that it sends a strong signal
BIS-Oxford Economics for their expert     previous years, with $9.4 billion of
                                                                                      to potential infrastructure investors
guidance, compilation of the project      projects classified as only prospective
                                                                                      that a highly motivated engineering
listings and the detailed independent     or considered unlikely to receive
                                                                                      sector exists, with contractors and
analysis that underpins the report.       funding. Until positive business cases
                                                                                      service providers eminently capable
This year, we have increased our          and investment decisions are made,
                                                                                      of preparing for and delivering world
investment in the report format to        mining and industrial projects such
                                                                                      class major projects.
enhance reading experience and            as those in the undeveloped Galilee
improve access to key report data         Basin remain at risk. The value of          As industry peak bodies we are
through a dedicated website. The          public sector projects which have           committed to promoting Queensland
new design and look of this report is     positive funding announcements              as a world leading destination for
a statement of confidence in the future   or are currently under procurement          economic development and new
of our partnership and the continued      outstrips the private sector. The report    infrastructure investment. We look
relevance of our report to industry for   also forecasts a significant 72%            forward to working with all our
years to come.                            reduction in private sector mining and      stakeholders in 2018 to grow the
                                          heavy industry projects in the next         pipeline of major projects in our
For infrastructure designers,
                                          five years compared to the last. The        great State.
contractors and other project
                                          ability of governments to identify and
participants, this report is an
                                          deliver on their planned infrastructure
indispensable business planning
                                          has therefore assumed even greater
tool, capable of guiding well-informed
                                          importance to the continued short-
decisions to participate in chosen
                                          term sustainability of the major projects
market sectors and geographic
                                          contracting sector.
regions.




Peter Anusas                              Brett Schimming                             Steve Abson
President                                 Chief Executive Officer                     Chief Executive Officer
Queensland Major                          Construction Skills                         Infrastructure Association
Contractors Association                   Queensland                                  of Queensland

                                                            Queensland Major Projects Outlook | 2018 Queensland Major Projects Pipeline   1
Queensland Major Projects Pipeline
EXECUTIVE
           SUMMARY
           Welcome to the second Queensland Major Projects Pipeline Report (the
           Report) developed by the Queensland Major Contractors Association (QMCA),
           Construction Skills Queensland (CSQ) and the Infrastructure Association of
           Queensland (IAQ). During this period, Queensland experienced a substantial
           boom and bust cycle in construction activity and major project work.

           The key finding of this Report is            Industry can feel more confident
           that major project work has risen            about investing in new equipment,
                                                                                                   Given rising major
           by 58% in 2017/2018 to $6.9 billion          productivity enhancing initiatives and
           after two successive years of low            skills development if they are given
                                                                                                   project activity in
           activity. Subject to level of funding        reasonable lead times to prepare in        other states and the
           commitments for 22 credibly proposed         the form of a clear, long-term major       need to meet growing
           projects, activity in 2018/2019 is           projects pipeline – and if governments     demand in Queensland,
           forecast to be retained at a similar         and procuring agencies implement           governments need to
           level. However, recovery in activity may     supportive policies.
                                                                                                   consider how they can
           be short-lived and decline again in
                                                        This year’s Report provides a              raise additional funding
           2019/2020 due to an identified lack
                                                        comprehensive list of major project        for infrastructure
           of viable replacement projects.
                                                        work, together with analysis on the
                                                                                                   projects, accelerate
           Maintaining recent momentum is               corresponding level of construction
                                                                                                   existing projects or
           therefore the core challenge facing          activity this entails and the subsequent
           the state, requiring a range of              demand for skilled construction labour.    stimulate private
           initiatives to improve levels of funding     This analysis is based on both the         investment
           for infrastructure, ensure capability        completion of existing projects and
           and capacity to manage a growing             the likelihood of potential projects
           pipeline and, fundamentally, provide         proceeding. A complete list of major
           positive conditions and frameworks           projects considered for this analysis,
           that support the economy’s growth            and the explicit assumptions for each
           engines: public and private investment.      project regarding work done and
           Given rising major project activity          construction workforces employed
           in other states, and the need to             each year, are provided in the
           provide infrastructure to meet               Appendix at the end of this report.
           growing demand in Queensland,
                                                        As well as presenting the pipeline, the
           governments need to consider how
                                                        Report discusses the key economic
           they can raise additional funding for
                                                        settings where major project activity
           infrastructure projects, accelerate
                                                        is taking place, for Queensland and
           existing projects or stimulate private
                                                        Australia, together with global trends.
           investment. Maintaining a stable
           and mildly growing pipeline of major
           project work from here will not only
           support economic growth and the
           sustainability of the major projects
           industry, but importantly will likely cost
           the government much less than if the
           projects were undertaken later in the
           cycle or in a more heated environment.



2   2018 Queensland Major Projects Pipeline | Queensland Major Project Outlook
Queensland Major Projects Pipeline
KEY FINDINGS
—— The total value of 190 projects                  —— Northern Queensland has the
   identified in the 2018 pipeline is                  strongest growth prospects in the
   $39.9 billion (Engineering Value),                  pipeline for all regions (including funded
   compared to 166 projects valued                     and unfunded work) compared to
   at $39.1 billion in the 2017 pipeline.              the past five years, but South East
   However, the value of funded work in                Queensland still commands the largest
   the pipeline is only $23.8 billion, with            share of major projects activity
   98 public and private projects still                (Figure 3).
   awaiting funding commitments.


—— New public and private investment                —— Queensland still lags New South
   – including projects in the Major                   Wales and Victoria in terms of
   Projects Pipeline – is having a                     funding and delivering infrastructure.
   broader, stimulatory effect on                      As New South Wales and Victoria
   the Queensland economy.                             further ramp up infrastructure
                                                       investment over the remainder of this
                                                       decade, challenges may re-emerge
—— Public and private sector
                                                       in procuring construction services
   investment – focused in roads, rail,
                                                       in Queensland. This is a challenge
   telecoms and electricity – is driving the
                                                       that will be compounded not only by
   current recovery in major project work.
                                                       digital disruption but by Queensland’s
                                                       and Australia’s changing
—— While major project activity has                    demographics – and in particular the
   risen from the 2016-2017 trough –                   ageing of the workforce, as identified
   the main challenge will be keeping                  in the workforce implications section
   activity at sustainable levels into the             of the Report.
   future given the weak outlook for
   currently funded work (Figure 1).


—— The value of public sector projects
   that have funds committed or are
   currently under procurement now
   outstrip the private sector by a factor
   of 6 to 1. The ability of governments
   to identify and deliver on their
   planned infrastructure has therefore
                                                      17%
                                                      of the overall
   assumed even greater importance
                                                      project pipeline
   to the continued short-term
   sustainability of the major projects               ($6.9B) is unlikely
   contracting sector.                                to proceed




                                               Queensland Major Projects Outlook | 2018 Queensland Major Projects Pipeline   3
Queensland Major Projects Pipeline
Figure 1

           Major Projects Work Done: All Segments
                 $ Billions
            20                                                                                                                                                       60%

            18
                                                                                                                                                                     50%
            16

            14
                                                                                                                                                                     40%
            12

            10                                                                                                                                                       30%

             8
                                                                                                                                                                     20%
             6

             4
                                                                                                                                                                     10%
             2                                                                                                                                                             The total value
             0                                                                                                                                                       0%    of 190 projects
                                                                                                                                                                           identified in the


                                                                                                                                                2020/21


                                                                                                                                                          2021/22
                   2010/11




                                                                                                   2016/17


                                                                                                              2017/18


                                                                                                                           2018/19


                                                                                                                                      2019/20
                               2011/12


                                            2012/13


                                                          2013/14


                                                                         2014/15


                                                                                       2015/16




                                                                                                                                                                           2018 pipeline is
                                         Funded                     Total Credibly Proposed                              Total Prospective
                                                       Total Unlikely                   % of Public Funding (RHS)
                                                                                                                                                                           $39.9b
           Figure 2 – Outlook by Sector

           Total Pipeline of Work Over the Next Five Years

                                    Defence                                                                                                               N/A


                   Water & Sewerage                                                                                                                       42%


                   Non-Water Utilities                                                                                                                    129%


                         Rail & Habours                                                                                                                   85%


                      Roads & Bridges                                                                                                                     77%


            Mining & heavy Industry                                                                                                                       -72%

                                                      0             2,000              4,000          6,000             8,000        10,000      12,000

                       Funded              Unfunded                 %   Compared to Previous Five Years (% Change)




           Figure 3

           Outlook by Region Over the Next Five Years


                               Gladstone                                                                                                                       -96%


                                         Bowen                                                                                                                  -12%


                                         Galilee                                                                                                                    N/A


              Northern Queensland                                                                                                                              361%


                                          Surat                                                                                                                 -52%


            South East Queensland                                                                                                                              167%

                                                      0                 3,000                    6,000           9,000               12,000          15,000

                             Funded                   Not Funded                   %   Compared to Previous Five Years (% Change)




4   2018 Queensland Major Projects Pipeline | Queensland Major Project Outlook
Queensland Major Projects Pipeline
Figure 4

Major Project Work Done and Queensland State Economic Performance
20,000                                                                                                                                   10


18,000
                                                                                                                                         8
16,000

                                                                                                                                         6
14,000


12,000
                                                                                                                                         4

10,000

                                                                                                                                         2
 8,000


 6,000                                                                                                                                   0

 4,000
                                                                                                                                         -2
 2,000


     0                                                                                                                                   -4
           2010/11   2011/12   2012/13   2013/14   2014/15   2015/16      2016/17   2017/18   2018/19      2019/20   2020/21   2021/22


                                               Funded        Not Funded         SFD A%ch        GSP A%ch




         LONG-TERM CHALLENGES
         AND RECOMMENDATIONS
         While investment in major                   It’s unsurprising that there is a                  Apart from the short-term impacts,
         engineering projects has improved in        correlation between major project                  investment in critical infrastructure
         Queensland, the general outlook for         work done and Queensland’s                         major projects can also boost long-
         growth in investment, employment            economic performance – with the                    run economic growth by improving
         and the broader economy is not              latter represented by growth in                    productivity (e.g. reducing transport
         exactly spectacular. Rather than            SFD and GSP. Major project work                    times and costs). This boosts the
         the high growth rates experienced           has strong multiplier impacts on                   economy’s “speed limit” before it
         during much of the 1990s and                the economy, particularly when it                  runs back into capacity constraints.
         2000s, economic growth (as                  uses local labour and resources.
                                                                                                        Overall, sustaining growth in the
         captured by Gross State Product             Essentially, additional major project
                                                                                                        Queensland economy requires
         or GSP) is expected to average              work requires other industries to
                                                                                                        putting into place plans and policies
         around 2.8% per annum through               boost their outputs also – both
                                                                                                        that will encourage and sustain both
         the next five years, with Queensland        directly to service the initial increase
                                                                                                        public and private investment in the
         State Final Demand (SFD) growth             in construction output, and then
                                                                                                        state over the long-term. This means
         averaging a slightly better 3.3% per        indirectly to satisfy the subsequent
                                                                                                        addressing funding issues highlighted
         annum. Historically, Queensland             expansion in the other industries.
                                                                                                        in the 2017 Major Projects Pipeline
         has significantly outperformed              The overall gross multiplier (or total
                                                                                                        Report, continuing to develop
         the Australian economy, however             direct requirement) for heavy and civil
                                                                                                        new productive infrastructure
         the next five years only sees very          engineering construction is over two,
                                                                                                        projects, and providing a supportive
         marginal outperformance overall.            suggesting that every dollar increase
                                                                                                        environment for privately funded
                                                     in major project work “requires” an
                                                                                                        projects to proceed.
                                                     overall boost of over two dollars
                                                     across the broader economy.




                                                                          Queensland Major Projects Outlook | 2018 Queensland Major Projects Pipeline   5
Port Drive upgrade




           There has been a 64% reduction               Meeting the infrastructure challenge
           in credibly proposed projects from           requires all levels of government
           $11.5 billion identified in our 2017         to develop policies that align their
           Report to just $4.1billion in this year’s    infrastructure priorities and streamline
           Report, which indicates challenges           approval of their project funding
           to sustaining major project work at          co-contributions. This is particularly     Encourage the
           2017/2018 levels over the next two           important in Queensland as the split
                                                                                                   adoption of new
           years. In the short-term, funding            in policy between Commonwealth
           for $4.1 billion of credibly proposed        and State on long-term asset leasing       technologies
           projects is required and detailed            and capital recycling means using this     that increase the
           business cases are needed to further         option to raise infrastructure funding     productivity of the
           support $5 billion of prospective            is not possible in the medium term,
                                                                                                   construction industry
           project investment decisions.                unlike the high-growth states of New
                                                        South Wales and Victoria. Policies are
           Over half of the private sector projects
                                                        also required that encourage private
           identified in the Pipeline are either
                                                        sector proponents to invest in their
           Prospective or unlikely to receive
                                                        existing infrastructure while attracting
           funding approval in the medium
                                                        new investment to Queensland.
           term. This is leading to a distinct lack
           of replacement projects for those
           currently under construction and
           is skewing the investable project
           ratio towards public sector projects.
           The challenge is to understand the
           barriers that are preventing greater
           private investment in existing or
           new private infrastructure – be that
           regulation, approvals, risk on financial
           return, perception of sovereign risk or
           confidence in the long-term outlook for
           the region.



6   2018 Queensland Major Projects Pipeline | Queensland Major Project Outlook
There are initiatives that governments can undertake to boost their funding capability and deliver
the infrastructure Queensland requires, including:


——Continue to mature the development of                     ——Improve identification of specific markets,
  independently prepared business cases and                   networks or regions where privately-led
  ensure that public infrastructure projects are              infrastructure proposals can provide critical
  selected through transparent cost benefit                   infrastructure. For different reasons, the
  analysis (CBA). To ensure continued regional                State-sponsored Market-led Proposal
  investment, regional projects in existing areas             initiative and the Commonwealth-sponsored
  or networks with low populations or relatively              Northern Australia Infrastructure Facility
  low initial demand may require more careful                 initiative have yet to stimulate substantial
  consideration of business case benefit-cost-                increased economic investment and major
  ratios of less than 1, taking a longer term and             project activity. Rather than await proposals,
  wider view of the project benefits.                         the formulation of specific prospectus by
                                                              government that invite interest in developing
                                                              desirable infrastructure may assist both
                                                              international and domestic private investors
                                                              to actively participate.


——Provide increased certainty of long-term                  ——Research, identify and work to remove
  Commonwealth funding streams through                        barriers to private sector infrastructure
  expanding the number of City Deals. The                     investment. The current value of funded
  Townsville City Deal struck in December 2016                private sector projects announced or being
  was the first in Australia and an important start.          procured is less than 20% than those
  A South East Queensland (SEQ) Regional City                 funded by the public sector. This indicates a
  Deal has the potential to be the foremost City              significant skew from the historical average
  Deal in the nation involving eleven separate                of 50-50 public-private investment in major
  Councils. This second generation City Deal can              engineering projects.
  provide a structured, coordinated plan for the
  long-term funding of SEQ infrastructure by all
                                                            ——Do not rule out infrastructure debt for
  tiers of government.
                                                              capital investment. In the right circumstance
                                                              where productive economic infrastructure is
                                                              identified through an independent business
                                                              case, increased debt funding can have a
                                                              powerful impact on economic growth.


——Provide increased certainty of Commonwealth             ——Maintain strong oversight and monitoring of
  and State contributions to funding of transport           government capital works expenditure and
  projects on the National Land Transport                   breaking the underspend pattern on planned
  Network. Since last year’s Report, there have             infrastructure investment. As highlighted in
  been further public disagreements by the                  the previous Report, there continues to be
  respective governments on major contributions             sharp differences in planned public investment
  towards funding major projects on the M1                  (measured as ‘purchases of non-financial
  motorway and Cross River Rail. This decreases             assets’ in various Budgets) and actual spending
  confidence and leads to uncertainty of the                outcomes. The 2016/17 State Budget, for
  transport projects in the Pipeline.                       example, planned for $8.3 billion in such
                                                            investment, which the recent 2017 Mid-Year
                                                            Fiscal and Economic Review (MYFER) confirmed
                                                            to be $7.3 billion – around a $1 billion shortfall.




                                                       Queensland Major Projects Outlook | 2018 Queensland Major Projects Pipeline   7
Logan Enhancement Project




           The existence of a highly skilled and efficient engineering and contracting market in Queensland can help
           to stretch tax-payer funds and attract private sector proponents looking to develop low-cost infrastructure
           and exploit global markets. For these reasons governments, private sector proponents and major project
           participants could collectively explore how to drive out waste, improve productivity and improve project risk
           allocation through the following:


            ——Utilise accurate capital planning, state                           ——Develop and maintain a plan for construction
              infrastructure plans and long-term project                           materials so that the demand and supply
              pipelines such as in this Report to give industry                    balance for scarce products can be quantified,
              the best possible chance of participating                            mapped and emerging gaps identified early in
              in major projects.                                                   the process. Similarly, attention needs to be
                                                                                   focused on the development and maintenance
                                                                                   of a construction transport and logistics plan to
            ——Increase collaboration between infrastructure
                                                                                   avoid bottlenecks, delays and rising costs for
              developers and the construction industry,
                                                                                   construction materials as a result of congested
              through the use of contract forms that seek
                                                                                   road transport networks.
              to maximise value through reduction in waste,
              reward innovation, lead to genuine improvements
              in productivity and best allocate risk.


            ——Increase efficiency in procurement of                              ——Encourage the adoption of new technologies
              infrastructure projects through use of more                          that increase the productivity of the construction
              selective and collaborative tender processes that                    industry. These can include offsite modular
              recognise the significant cost involved in bidding                   construction, automation, digitisation, use of
              for large infrastructure projects (costs that                        Building Information Modelling (BIM) to enhance
              ultimately need to be recovered either through                       supply chain collaboration and investigate better
              direct reimbursement or mark-up).                                    forms of knowledge transfer.


            ——Strengthen the focus on workforce planning                         ——Encourage the development of formal dispute
              and skills development initiatives so that                           avoidance strategies that include the use of
              demand for key onsite skills can meet the                            effective collaboration to develop construction
              infrastructure activity.                                             price certainty and allocate project risk using
                                                                                   best practice.




8   2018 Queensland Major Projects Pipeline | Queensland Major Project Outlook
Queensland Major Projects Outlook | 2018 Queensland Major Projects Pipeline   9
ECONOMIC
            OUTLOOK
                                                                                  Population
                                                                                  growth is among
                                                                                  the highest of
                                                                                  the developed
                                                                                  economies,
                                                                                  which has
                                                                                  helped underpin
                                                                                  household
                                                                                  consumption
                                                                                  and demand for
                                                                                  dwelling and
                                                                                  infrastructure
                                                                                  construction



                         Differences in the timing and
                   magnitude of investment cycles by
                  region are creating large differences
                       in economic performance (and
                        construction activity) by state




                                            Further declines in bulk commodity
                                            prices are anticipated, before a
                                            longer term recovery, affecting
                                            Queensland royalty revenues




10   2018 Queensland Major Projects Pipeline | Queensland Major Project Outlook
Public Sector Pipeline
  $20.2 billion total (over 5 years)



                                             Credibly                                                 Under                     Under
 Unlikely               Prospective          proposed                    Announced                 procurement               construction
      11                      18                   13                           17                          8                        24
projects valued at      projects valued at   projects valued at           projects valued at         projects valued at        projects valued at

   $0.5b                   $2.0b                $2.2b                        $4.7b                       $3.4b                    $7.4b


                     Unfunded $4.7 billion                                                     Funded $15.5 billion




  Private Pipeline
  $19.7 billion total (over 5 years)



                                             Credibly                                                 Under                     Under
 Unlikely               Prospective          proposed                    Announced                 procurement               construction
      21                      26                    9                            5                          4                        34
projects valued at      projects valued at   projects valued at           projects valued at         projects valued at        projects valued at

   $6.4b                     $3b                $1.9b                        $0.7b                       $0.7b                    $6.9b


                     Unfunded $11.4 billion                                                    Funded $8.3 billion




                                                                  Queensland Major Projects Outlook | 2018 Queensland Major Projects Pipeline       11
ECONOMIC OUTLOOK
            The Queensland economy has traditionally been one of the stronger state
            performers in Australia but has been suffering the effects of a prolonged
            downturn in public and private investment.

            While one of Australia’s key ‘resources’ states – and one of the largest exporters of coal (and now gas) – the State economy
            remains highly diversified and increasingly linked into global trade networks through tourism, agriculture and education
            industries. Mining investment is at a trough and rising non-mining investment and service credits will help offset expected
            falls in private dwelling investment.

            Key points:
             ——Global economic growth is predicted to strengthen in           ——Queensland State Final Demand (SFD) rose in 2016/17
               2018, before moderating in the longer run. World Gross           after two years of decline. Over the past year, growth
               Domestic Product (GDP) growth has risen from 3.2% in             in SFD has been underpinned by modest growth and
               calendar 2016 to 3.7% in 2017 and is forecast to rise to         contributions from household spending, business
               3.9% in 2018. From 2019, the world economy will begin            equipment purchases, government recurrent expenditure
               to show gradually slower growth, linked to long-term             and dwelling investment, although growth in dwelling
               fundamentals, with growth forecast to average 3.3%               investment has slowed sharply over recent quarters after
               over the five years to 2027.                                     strong growth over the previous four years.

             ——Global prices for a number of commodities are expected         ——Employment growth gained momentum, pushing the
               to retreat over 2018, before slowly recovering over              unemployment rate down to 5.2%. Annual employment
               subsequent years as the global oversupply in a number            growth is now over 4%, on-trend with the bumper jobs
               of commodities dissipates. Bulk commodity (coking coal           growth seen at the national level over the same period.
               and iron ore) prices rebounded in 2016/17 but have               The employment participation rate has also gradually
               come down from recent peaks – though they are still              improved, reaching over 65.5% for the first time since
               well above the trough in early 2016. Prices are set to           February 2016, significantly improving the health of the
               consolidate in the near term for most other commodities          labour market.
               but rise in the medium to longer term supporting
               Australian producers.

             ——Australia’s annual GDP growth is forecast to remain        ——The worst of the mining investment slump has now
               around 2.5% for the next three years. GDP will be            past and Queensland’s economy is forecast to slowly
               boosted by net exports, with solid growth in export          pick up over the next two to three years despite a
               volumes forecast. Underpinning this will be healthy global   downturn in residential construction. Growth in SFD,
               growth (which will drive demand for services exports),       GSP and employment are all forecast to be similar to
               new Liquefied Natural Gas (LNG) capacity, and moderate       the national average over the next few years, although
               growth in capacity in other key commodities. Rural and       state economic growth will remain well below historical
               manufacturing exports are also expected to contribute,       averages of over 4% per annum (for SFD and GSP).
               with both sectors taking advantage of Australia’s
               comparative advantage in high quality, high
               value-added output.

             ——Queensland’s economic growth (as measured by Gross
               State Product or GSP) slowed marginally in 2016/17
               to 1.8% following 2.6% growth in 2015/16. This mild
               deceleration was driven by a slowdown in housing
               investment combined with the continued fall in non-
               dwelling mining construction. Yet these declines were
               offset by growth in exports as LNG production ramped
               up in conjunction with rising service credits (tourism).




12   2018 Queensland Major Projects Pipeline | Queensland Major Project Outlook
Figure 5

                                           Economic Growth by Region and Country

                                                                                               Real GDP/GNP#
                                               Year            OECD            US Japan            Euro China India Other                      World
                                               Ended                (1)(4)
                                                                                                   area              East                      GDP(4)
                                               December                                                            Asia(3)(4)

Despite the rising risks,                      2008                 0.2       -0.3       -1.1         0.4        9.6       6.2        7.7          3.0
the global economy                             2009                -3.5       -2.8       -5.4       -4.3         9.5       5.1        4.4         -0.5
is still positive for                          2010                 3.0        2.5        4.2         2.1      10.6      10.9         4.8          5.3
Queensland
                                               2011                 2.0        1.6       -0.1         1.7        9.5       6.9        4.3          4.1
                                               2012                 1.4        2.2        1.5       -0.4         7.8       5.5        4.2          3.3

While there is no shortage of                  2013                 1.5        1.7        2.0         0.3        7.8       6.2        3.8          3.4
commentary surrounding the risks               2014                 2.2        2.6        0.3         1.8        7.3       7.1        4.0          3.5
inherent in global economic growth
                                               2015                 2.5        2.9        1.4         2.2        6.9       7.5        4.5          3.2
– ranging from the sustainability of
Chinese growth and resilience of its           2016                 1.8        1.5        0.9         1.9        6.7       7.9        4.3          3.2
financial system to the effect and             2017                 2.5        2.3        1.8         2.4        6.9       6.2        4.2          3.7
impact of new trade sanctions – the            Forecast
fact remains that economic conditions
                                               2018                 2.5        2.8        1.7         2.2        6.4       7.5        4.1          3.9
on the ground have improved in the
US and across Queensland’s major               2019                 2.0        2.0        0.9         1.8        6.0       7.0        4.0          3.6
trading partners.                              2020                 1.6        1.5        0.0         1.6        5.7       6.9        4.0          3.5
World GDP growth was robust in                 2021                 1.6        1.5        0.9         1.5        5.4       6.6        3.9          3.4
calendar 2016 (reaching 3.2%) and              2022                 1.6        1.5        0.9         1.4        5.2       6.4        3.8          3.3
growth accelerated to 3.7% through
                                                                                Average Growth Rates
calendar 2017. Growth is being
supported by rising manufacturing              2003–2007            2.8        2.9        1.7         2.5      11.7        8.6        4.5          4.9
activity and global trade flows.               2008–2012            0.6        0.7       -0.2       -0.1         9.4       6.9        5.1          3.0
Developed economies are leading the
                                               2013–2017            2.1        2.2        1.3         1.7        7.1       7.0        4.2          3.4
way for the first time in a decade. From
2019 onwards, the world economy is             Forecast
expected to slow somewhat, linking             2018–2022            1.9        1.9        0.9         1.7        5.7       6.9        4.0          3.5
once again to long-term fundamentals           2023–2027            1.5        1.6        0.5         1.2        4.7       6.2        3.6          3.3
(falling population growth and
structurally slower productive gains),     (1)	Organisation for Economic Co-operation and Development: Australia, Austria, Belgium, Canada,
                                                Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, the
but it is still expected to average 3.5%        Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom,
per annum over the five years to 2022.          United States.
                                           (2)	Euro area: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia,
Australia’s trading partner growth              Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, Spain.
(weighted by export proportions) will      (3) Other East Asia: Indonesia, South Korea, Malaysia, Philippines, Singapore, Taiwan, Thailand, Vietnam.
grow at a faster rate of 3.8% over         (4) 2017 is an estimate.
                                           (5)	Trading partner countries include: China, Japan, Hong Kong, United States, New Zealand, India,
the next five years, due to the high
                                                Europe and Other East Asia.
weights of China, East Asia and India      #    Annual Per Cent Change.
in Australia’s export mix. Although
these economies will experience
slower growth going forward, they
are still expected to outpace the
global average. In the US, business
investment is forecast to accelerate,
driven by improving domestic demand
and export gains from a more
competitive US dollar and a stronger
global climate, rebounding energy
sector activity and corporate tax cuts.



                                                                  Queensland Major Projects Outlook | 2018 Queensland Major Projects Pipeline             13
Figure 6 – Commodity Prices ($US)

            Quarterly Average Prices (Log Scale)
            320                                                                                                                                     Forecast




            160




             80




             40




             20




             10
                  Jun 90   Jun 92   Jun 94   Jun 96   Jun 98   Jun 00   Jun 02   Jun 04   Jun 06   Jun 08   Jun 10    Jun 12   Jun 14   Jun 16   Jun 18   Jun 20

                                        Coking Coal (US$/t)        Thermal Coal 9US$/t)        Crude Oil (US$/t)        Iron Ore (US$/t)

            Source: BIS Oxford Economics, BREE data




            The combination of solid increases in                  Further declines in
            employment and improved (although                      bulk commodity prices                             Queensland – and
            still moderate) wage growth should                                                                       Australia more broadly
                                                                   are anticipated, before
            drive higher household incomes,                                                                          – continues to be well
                                                                   a longer term recovery,
            consumer spending and residential
                                                                   affecting Queensland                              positioned to supply
            investment.
                                                                   royalty revenues (and                             commodities
            Meanwhile, the Eurozone is expanding
                                                                   impacting on the
            at the fastest pace in a decade.                                                                         A combination of geographical
            Firming domestic demand is driving                     Australian dollar)
                                                                                                                     proximity to Asian demand centres,
            the economy, with investment                                                                             favourable policies, supporting
            recovering and weaker inflation, strong             After recording strong gains from                    infrastructure, being at the lower
            consumer confidence and employment                  supply side concerns, coking coal                    end of the cost curve for several
            supporting household spending. The                  prices are forecast to fall over the next            commodities, and high quality /
            overall Eurozone unemployment rate                  two years driven by both increased                   low impurity content of mineral
            is at a nine-year low.                              coking coal production in China and                  endowments will all support future
            Japan is expected to benefit from                   a return to average (normal) production              exports from Australia. This will help
            ongoing monetary and fiscal stimulus,               levels in Australia. A sustained recovery            counter the negative effects of several
            including a delay in a sales tax hike               is forecast from early next decade                   mines reaching their end-of-life and the
            in response to ongoing weakness in                  as global growth builds momentum                     possibility of discovering lower quality
            private demand growth. Meanwhile,                   against constrained supply, and as                   ore body during exploration. However,
            China, while gradually slowing, is                  the path of development in emerging                  lower prices for coal, if realised,
            still the world’s largest economy                   economies becomes more steel                         present a risk to state government
            and will continue to make significant               intensive. For thermal coal, prices are              royalties. To some extent however, the
            contributions to global growth. India               still elevated, although a correction                fall in commodity prices (combined
            and ASEAN-5 (Indonesia, Philippines,                is expected over 2018 and 2019 as                    with rising interest rates in the US) is
            Malaysia, Thailand and Vietnam) GDP                 ‘one-off’ recent price drivers dissipate             also likely to keep the Australian dollar
            growth is expected to pick up pace                  and markets come back to balance. A                  below recent highs, which will help
            over the next two years while Russia                modest price recovery is forecast from               offset lower US-dollar commodity
            and Brazil – currently in recession – are           next decade as demand is expected to                 prices – and also provide
            expected to recover from 2017 adding                outweigh supply.                                     a boost to Queensland’s
            to world growth.                                                                                         trade exposed industries.

14   2018 Queensland Major Projects Pipeline | Queensland Major Project Outlook
Figure 7 – Commodity Prices ($US)

Quarterly Average Prices (Log Scale)

                                                                                                                                        Forecast



32,000



16,000



 8,000



 4,000



 2,000



1,000


    0 Jun 90   Jun 92   Jun 94   Jun 96   Jun 98   Jun 00   Jun 02   Jun 04   Jun 06   Jun 08   Jun 10   Jun 12   Jun 14   Jun 16   Jun 18   Jun 20


                             Nickel        Lead (x10)         Gold (x10) (US$/oz)        Copper          Zinc       Aluminium
Source: BIS Oxford Economics, BREE data




Offsetting investment                              The main factor dragging down growth              Overall, however, the Australian
cycles keep the Australian                         has been a major decline in mining                economy has been unable to sustain
                                                   investment, which has coincided (and              economic growth above 3% since the
economy subdued
                                                   contributed to) weakness in non-                  peaking of the resources investment
                                                   mining business investment.                       cycle in 2012/13. Much of this weaker
The Australian economy has strong
fundamentals, now enjoying 27 years                The shift in the Australian economy               economic performance is due to very
of uninterrupted growth since the                  back to broad-based growth following              weak growth in domestic demand
1990/91 recession. Population growth               the mining boom continues to                      during the period, which has been
is among the highest of the developed              progress slowly. Growth is still below            negatively impacted by the ongoing
economies, which has helped                        trend–GDP growth has averaged                     decline in resources investment.
underpin household consumption and                 around 2.5% annually over the last                While partially cushioned by a boom in
demand for dwelling and infrastructure             five years, with FY2017 coming                    residential investment since 2013/14
construction. Government debt is                   in below that, at 2.1%. There are                 and, more recently, by a recovery
comparatively low by global standards,             some positive signs. Net exports are              in public infrastructure investment,
with the Federal Government and the
                                                   contributing positively to demand, with           economic growth has also been
larger state economies of New South
                                                   the global upswing and a competitive              hampered by record low growth in
Wales and Victoria maintaining AAA
                                                   Australian dollar (albeit recently flirting       wage incomes, with households
credit ratings. Overall economic risks
                                                   with US$0.80) helping to drive export             spending more of what they earn
are low and the Australian economy is
                                                   volumes growth. But despite stronger              and reducing savings to maintain just
well situated in the fast growing Asia
                                                   profitability, non-mining business                moderate household expenditure
Pacific region.
                                                   investment remains patchy, and with               growth. Weak wage growth has also
Nevertheless, growth in GDP and                    spare capacity still to absorb in the             driven weaker than budgeted tax
particularly domestic demand has                   labour market, household income                   revenues for governments, lengthening
been lower over the past five years                and consumer spending growth is                   the time horizon required to return to
than the previous two decades.                     forecast to remain below trend this               sustainable budget surpluses, and
                                                   year and next.                                    limiting the firepower of governments
                                                                                                     to counter weak private investment
                                                                                                     with higher public investment without
                                                                                                     further increasing public debt.



                                                                       Queensland Major Projects Outlook | 2018 Queensland Major Projects Pipeline    15
Unlike many other resources-                 Low interest rates in this environment     There remain challenges ahead for
            exporting economies, Australia did not       have had relatively little impact. While   the Australian economy that are likely
            experience a recession in the wake of        there have been plenty of funds            to keep business confidence and
            the resources investment bust. Strong        available, this just hasn’t been the       investment on a weak plane over
            growth in mining production and              business environment for strong            the next one to two years. Wage
            exports from world class, competitive        private investment.                        growth, except for skilled professions
            deposits, and supercharged by                                                           and trades in some sectors and
                                                         The next growth phase in the
            a much lower dollar – which also                                                        states, is likely to remain relatively
                                                         Australian economy will be driven
            stimulated other exports of goods and                                                   weak, affecting retail trade and
                                                         by non-mining business investment.
            services, such as tourism, education                                                    household expenditures. Politics is
                                                         When it does recover, it will be to
            services, agriculture, manufacturing                                                    highly adversarial, with major political
                                                         service growing demand, driven
            and business services – has helped                                                      parties unable to forge a workable
                                                         by a growth logic (evidenced by
            offset some of the pain from weaker                                                     consensus on many important policy
                                                         rising profits) and augmented by a
            demand growth. Economic growth                                                          areas surrounding taxation, energy
                                                         technology catch-up. In turn, this
            (which includes net exports) has                                                        security, and the environment. But,
                                                         will have a strong multiplier through
            generally been higher than growth                                                       more importantly, investment cycles
                                                         business services into the rest of the
            in domestic demand.                                                                     across Australia are likely to remain
                                                         economy. While non-mining business
                                                                                                    highly unsynchronised over the next
            The challenge for Australia is that          profits have increased, it is still too
                                                                                                    two years – keeping overall economic
            mining exports, particularly, are highly     early to say that businesses are
                                                                                                    growth constrained to around 2.5%
            capital – rather than labour – intensive.    confident in the path of future demand
                                                                                                    per annum on average over 2017/18
            Stronger, sustainable growth in              and profits, and are willing to make the
                                                                                                    and 2018/19.
            employment requires stronger growth          psychological shift from caution to a
            in local expenditures; and in domestic       ‘go for growth’ investment mentality.
            demand. In turn, this requires the
                                                         Part of the reason for this is that
            return of growth in non-mining
                                                         nationally, by region and industry,
            business investment, which
                                                         growth and profitability is highly
            has remained stalled since the GFC.
                                                         fragmented. Very strong economic
            The problem for non-mining industry          growth has returned to New South
            sectors has generally been weak              Wales and Victoria, after spending
            growth in demand, weak profits and           much of the mining boom years
            excess capacity. In that environment,        suppressed. But growth in demand is
            it is foolhardy for businesses to invest     still very weak in many other regions.
            ahead of requirements, straining cash        Some states such as Western Australia
            flows and locking in additional costs        and Queensland saw outright declines
            before they had the revenue to support       in State Final Demand in recent years.
            them. Most businesses are still in
            cost-cutting mode, preserving cash
            and deferring investment until
            demand recovers.




                                          Mining construction
                                           will decline around




                                    78%
       from the 2013/14 peak to the trough


16   2018 Queensland Major Projects Pipeline | Queensland Major Project Outlook
Figure 8                                                                             These unsynchronised investment
Major Project Work Done by Segment                                                   cycles include:
     Per cent                                                     Forecast           ——Residential investment, a
8
                                                                                       key driver of growth over the
                                                                                       three years to 2015/16, which
6                                                                                      is expected to peak and then
                                                                                       decline over the next three years,
4
                                                                                       with particularly large declines
                                                                                       expected in the volatile high
                                                                                       density apartment market.
2
                                                                                     ——Mining investment nationally,
0                                                                                      which is in the final stages of
                                                                                       decline as the LNG investment
                                                                                       boom finally runs its course
-2
                                                                                       in Western Australia and the
                                                                                       Northern Territory (having already
-4                                                                                     wound down in Queensland).
 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019       Overall, mining construction
 Year Ended June
                 Real GNE          Real GDP         External Contribution              will decline around 78% from
                                                                                       the 2013/14 peak to the trough,
                                                                                       although mining equipment
Contribution to Domestic Demand – Percent
                                                                                       purchases and exploration have
                                                                                       started to recover across most
  Per cent                                                         Forecast
 4                                                                                     commodities (indicating the initial
                                                                                       stages of the next upturn).
 3                                                                                   ——Public investment, which has
                                                                                       finally started to recover after five
 2                                                                                     years of decline, surging 16% in
                                                                                       2016/17 alone. Growth in public
 1                                                                                     investment is being supported
                                                                                       by new transport infrastructure
 0                                                                                     but will be offset in part after
                                                                                       2018/19 by sharply falling
                                                                                       investment in Australia’s largest
-1
                                                                                       public infrastructure project – the
                                                                                       NBN. Even considering a strong
-2
                                                                                       phase of growth in transport
  1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
  Year Ended June                                                                      infrastructure, growth in total
                  Private Consumption         Government Expenditure                   public investment is expected to
                  New Business Investment     Dwelling Investment
                                                                                       be either flat or falling (and hence
                                                                                       be a drag on Australia’s economic
                                                                                       growth) by the end of the decade.

                                                                                     ——Non-mining business
                                                                                       investment, which is currently
                                                                                       showing only modest growth but
                                                                                       is expected to strengthen from
                                                                                       last decade as higher profitability,
                                                                                       demand and capacity utilisation
                                                                                       (in turn supported by a slightly
                                                                                       weaker Australian dollar) drive a
                                                                                       change in business confidence
                                                                                       and investment.




                                                           Queensland Major Projects Outlook | 2018 Queensland Major Projects Pipeline   17
Domestic demand is predicted to              Queensland’s                             Yet in one important sense, the
            improve late this decade as the              economic challenge                       Queensland economy has been
            expected declines in mining and              The end of the mining boom was           partially sheltered from the severity
            residential investment bottom out            always going to be a trying time for     of the downturn in mining investment.
            and start showing signs of recovery.         the Queensland economy. Economic         Significant components of mining
            Capacity constraints and expected            growth weakened markedly from            and mining-related investment
            improvements in business confidence          2011/12 driven by falling mining and     and equipment were sourced from
            are predicted to drive an acceleration       public investment. Growth in GSP         overseas, and were therefore classed
            in non-mining business investment.           averaged 4.4% per annum over the         as imports, detracting from GSP.
            But until that time, economic growth         10 years to 2009/10 then fell to         As mining investment retreated, so
            and inflation is expected to remain          average 2.5% per annum over the          did these imports. So, although the
            relatively subdued, with the Reserve         five years to 2014/15.                   local economy did not receive all the
            Bank unlikely to be in a strong position                                              benefits of the resources construction
            to raise interest rates until 2019/20.       Meanwhile, growth in SFD – a measure     boom during the upswing, it
                                                         of domestic demand or spending in        conversely did not suffer the whole
            Differences in the timing and                the local economy which is highly        negative magnitude of the downturn.
            magnitude of investment cycles by            correlated with employment – slowed
            region are creating large differences        to just 0.9% in 2013/14 (compared        Mining now accounts for a falling
            in economic performance (and                 to growth rates of between 5% to         share of total engineering construction.
            construction activity) by state. Strong      9% during the boom years), and then      At the 2013/14 peak, mining and
            pipelines of infrastructure projects,        fell 3.6% in 2014/15 and a further       heavy industry construction, pipelines
            relative undersupply in housing,             1.2% in 2015/16. Employment              construction and railways construction
            higher population growth and                 growth weakened in unison, with          accounted for around 90%
            private sector confidence to invest          the unemployment rate averaging          (or $35.9 billion of the total
            is driving a construction upswing in         5.9% over the five years to 2014/15      $39.2 billion) of privately funded
            New South Wales and Victoria, which          (compared to 4.5% over the five years    engineering construction. Since
            in turn is spilling over into broader        to 2009/10). This weakness continued     then, resources-related engineering
            industry growth.                             into 2015/16, and the first half of      construction has simply plummeted.
                                                         2016/17, with monthly employment         The void left by retreating mining-
            By contrast, total investment and
                                                         falling consecutively on more than       related engineering construction is
            construction activity remains relatively
                                                         three occasions over the period. More    being partially offset by a recovery in
            flat (or falling) in the former resources
                                                         recently, however, the labour market     public investment. After little growth in
            boom states of Queensland and
                                                         has shown some strength with the         the previous three years, Government
            Western Australia. These states are
                                                         annual employment growth rate rising     Consumption Expenditure (GCE)
            now generating strong growth in
                                                         above 4%.                                jumped over 5% in 2015/16 and
            mining production and exports as a
                                                                                                  2016/17. Strong rises in education
            direct consequence of the previous           Private engineering construction,        and health-related employment is
            resources investment boom, boosting          which is dominated by resources-         contributing to the rise in GCE and the
            Gross State Product (GSP). However,          related construction, peaked at $39      healthier total employment figures.
            growth in State Final Demand (SFD),          billion in 2013/14 and then plunged
            the sum of household consumption,            68% over the next two years. There       Higher levels of private dwelling
            government consumption and                   were also large declines in equipment    investment helped offset declines in
            investment – (both public and private)       purchases and exploration by the         private engineering construction. The
            has been very weak or negative in            Queensland mining industry over the      recent upswing in residential building
            recent years. This is important, as          2013/14 to 2015/16 period. Although      followed a six-year decline (2007/08
            growth in SFD tends to be a greater          mining and heavy industry construction   to 2012/13), which occured at the
            driver of growth in employment and           decreased a further 10% in 2016/17,      same time that the mining boom
            incomes than growth in (capital-             the smaller decline off a much smaller   was stimulating robust population
            intensive) mining exports.                   base of investment has delivered a       growth from both interstate and
                                                         smaller negative contribution to SFD.    overseas, resulting in an undersupply
                                                         Meanwhile, the jump in coal prices       of housing. This undersupply has now
                                                         and higher base metals prices over       been eliminated, with private dwelling
            There are vast                               2016/17 has seen coal mines in           investment growing at an average of
            differences in                               Queensland re-opened and increases       12% per annum over the three years
                                                         in mining equipment purchases.           to 2015/16 and peaking in 2016/17.
            economic performance
            by state



18   2018 Queensland Major Projects Pipeline | Queensland Major Project Outlook
Figure 9

Total Construction Work Done by State (2015/16 Constant prices)
70,000                                                                           Forecast


60,000


50,000

                                                                                                                  Queensland economy
40,000
                                                                                                                  to pick from here,
30,000
                                                                                                                  but growth likely to
                                                                                                                  be constrained
20,000


10,000                                                                                                      The Queensland economy is showing
                                                                                                            signs of recovery. The lower, post-
       0
                                                                                                            boom Australian dollar has helped
           1990     1994      1998      2002       2006          2010         2014       2018        2022
           Year Ended June                                                                                  boost tradeables such as tourism
                                                                                                            and educational exports, with
                   NSW        VIC      QLD     WA          NT           ACT      TAS          SA
                                                                                                            manufacturing also likely to benefit
Source: BIS Oxford Economics, BREE data                                                                     over the forecast horizon. Meanwhile,
Figure 10                                                                                                   public investment has returned after a
                                                                                                            number of years of weakness.
Comparisons of State (SFD) and National (GNE) Growth in Final Demand
                                                                                                            Public investment had been a drag
                                                                                            Forecast
20%
                                                                                                            on the Queensland economy for
                                                                                                            several years, having fallen by over
15%
                                                                                                            a third over the six years to 2015/16
                                                                                                            from the 2009/10 peak. Public non-
10%                                                                                                         dwelling building had fallen to its
                                                                                                            lowest level since 1993/94 (in real
 5%
                                                                                                            terms). However, it is now bouncing
                                                                                                            back, led by education-related and
                                                                                                            other social and institutional buildings.
 0%
                                                                                                            Public engineering construction also
                                                                                                            picked up strongly over 2016/17 and
 -5%                                                                                                        further strong growth is predicted
                                                                                                            for 2017/18 and 2018/19, driven
-10%                                                                                                        by roads, harbours, defence, water
       1987            1993            1999               2005                 2011                2017     and telecommunications-related
       Year Ended June
                                                                                                            infrastructure. Further modest rises
                         AUS GNE          WA SFD            QLD SFD                  SA SFD
                                                                                                            are expected thereafter, with falling
10%                                                                                         Forecast        telecommunication construction
                                                                                                            – as the NBN roll-out winds down –
 8%
                                                                                                            moderating the overall increases.
 6%


 4%


 2%

 0%


 -2%


 -4%


 -6%
       1987            1993            1999               2005                 2011                2017
       Year Ended June
                                     AUS GNE        NSW SFD              VIC SFD


                                                                              Queensland Major Projects Outlook | 2018 Queensland Major Projects Pipeline   19
Figure 11

            Queensland Economy – Components of State Final Demand

            400,000                                                                                                                                Forecast


            350,000


            300,000


            250,000


            200,000


            150,000


            100,000


             50,000


                  0
                       91 92 93 94      95   96   97   98   99    00   01   02   03   04   05   06   07   08   09   10    11   12   13   14   15   16   17    18
                      Year Ended June

                         Public Investment        Private Investment         Private Consumption Expenditure             Government Consumption Expenditure


            Source: BIS Oxford Economics, BREE data




            A sizeable chunk of the funding for                  A key challenge facing the Queensland               Office building work has declined
            this pick-up in activity is coming                   economy is the expected decline in                  sharply in recent years, with only weak
            from Commonwealth infrastructure                     residential building, following strong              growth in prospect, largely due to
            allocations. Without increased income,               growth over the past four years. With               oversupply related to the decline in
            State Government finances are                        the level of dwelling building now                  mining investment-related business
            unable to support major increases in                 well above demand, an oversupply                    services which were a key component
            infrastructure spending. Public sector               is manifesting, particularly in the                 of office demand. Retail building is
            debt has continued to escalate and                   apartment heavy inner Brisbane                      also expected to be relatively flat
            the Queensland Government has lost                   market. Private dwelling investment                 over the next few years in line with
            its AAA credit rating. The fall in coal              slowed to 2.8% in 2016/17 and is                    consumer spending, but strong
            and minerals prices over the three                   expected to contract over the three                 growth is anticipated in hotel and
            years to 2015/16 also weakened                       years to 2019/20 inclusive.                         accommodation construction.
            royalty revenues. On the other hand,
            State Government revenues have
            benefitted from the residential property             … with non-residential                              A competitive Australian
            recovery and corresponding increases                 building investment a                               dollar will continue to
            in stamp duties. Generally higher coal               mixed bag                                           support service exports
            prices (since the trough in early 2016)
            and rising LNG production should                     Private non-residential building                    The ‘X factor’ for the Queensland
            help boost government revenues and                   declined over 2016/17, after six years              economy remains the value of the
            underwrite healthier increases in public             of solid growth, but further growth is              Australian dollar and the improved
            investment as well as modest rises                   expected over the next three years.                 attractiveness of Queensland’s key
            in GCE.                                              Over the next year, higher activity                 service exports.
                                                                 in the hotels segment (boosted by
                                                                 the lower dollar), warehouses and
            Falling residential building                         private schools building should more
            activity will dampen                                 than offset declines in other sectors,
            overall growth…                                      particularly in the health sector as work
                                                                 winds down on the (mainly privately
                                                                 funded) $1.2 billion first stage of the
                                                                 Sunshine Coast University Hospital.


20   2018 Queensland Major Projects Pipeline | Queensland Major Project Outlook
Townsville Ring Road




The Queensland tourism industry              While rising interest rates in the United    After negligible growth through
has been buffeted for almost a               States and a near term correction in         2016/17, employment growth has
decade – first by the GFC and then           some key commodity prices (e.g. coal         ramped up significantly through
by the high Australian dollar which          and iron ore) would suggest that the         2017/18 to date, with annual growth
made holidaying in Australia more            Australian dollar may depreciate further     over the year to February 2018 just
expensive relative to other destinations     against the US dollar in coming years,       shy of 4%. Strengthening public and
in the region (for both domestic and         there is the risk that the Australian        business investment and renewed
international visitors). However, after      dollar will remain stubbornly around         tourism growth have been key drivers.
a decade of constraint, non-mining           the US$0.75 mark for some time, and          However, overall employment growth
trade-exposed industries are beginning       may even appreciate, particularly as         will likely weaken over the next two
to recover. At the national level, tourism   the Australian economy improves later        years, keeping household spending
related service exports grew 15%             this decade. Consequently, it will be        growth muted, similar to the last four
over 2016/17. The low dollar has also        important for Queensland businesses          years. Previous employment growth
supported growth and employment in           to take advantage of the competitive         was spurred by much higher rates
Queensland’s education sector. These         gains already rendered by the fall in        of population growth. Queensland’s
sectors will need to refurbish and           the dollar now – and not wait or rely on     population growth has come back to
then expand to meet demand. Other            further falls in the currency as part of a   the pack and, at 1.6% annual growth,
dollar-exposed industries are benefiting     longer-term growth strategy.                 is around the national average – after
from the improved competitiveness of                                                      decades of population growth well
a lower dollar, showing initial signs of                                                  above the national average.
recovery. That will broaden to growth        Employment improving,
and, eventually, investment in the non-      yet recent growth to
mining sectors. But it is expected           moderate                                     GSP boosted by stronger
to be a long process.                                                                     SFD growth over the
                                                                                          medium term




                                                               Queensland Major Projects Outlook | 2018 Queensland Major Projects Pipeline   21
Figure 12

            Queensland Annual Population Increase by Source

            120


                                                                                                                               Forecast

            100




             80




             60




             40




             20




              0
                      00    01   02    03    04         05    06    07       08     09      10   11   12    13   14     15    16    17        18   19   20   21   22
                     Year Ended June
                                                             Interstate Migration           Overseas Migration        Natural Increase

            Source: BIS Oxford Economics, BREE data



            Figure 13

            5 Year Compound Annual Growth by Industry Sector, Queensland

            Construction
            Agriculture
            Rental, Hiring & RealEstate
            Electricity, Gas, Water & Waste Services
            Ownership of Dwellings
            Manufacturing
            Retail Trade
            Wholesale Trade
            Public Administration & Safety
            Administation & Support
            Other Services
            All Inudstries Average
            Education & Training
            Transport, Postal & Warehousing
            Property & Business Services
            Arts & Recreational
            Mining
            Finance & Insurance
            Accommodation & Food Services
            Professional, Scientific & Technical
            Information, Media & Telecommunications
            Health

                             -4                    -2                    0                       2                4                       6                  8

                                                                                  2012-17        2018-22


            Source: BIS Oxford Economics, BREE data




22   2018 Queensland Major Projects Pipeline | Queensland Major Project Outlook
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